10 Common Questions About Subscription Models Answered
Whenever I speak about membership and subscription models (which is often) I receive questions about subscription model best practices.
I thought it would be useful to answer a bunch of the most common “real world” questions.
Maybe these are the same questions you have. Or maybe they raise new questions for you.
If you have other questions, please post them, either in the comments section or at The Membership Economy Lab, and I’ll do my best to answer them!
- Can any business transition into a subscription business? Nearly every organization can incorporate subscription pricing. But first, you need to determine what forever promise you’re making to your best customers that will justify their trust and loyalty. Take a step back from your current operations and ask yourself what goal your customers are trying to achieve, or what problem they’re trying to solve that drove them to you in the first place. For example, they might have bought the dress to “look appropriate” or they joined your association to “have a successful career”. It’s not about the dress or the conference. Start to think about what additional value you could layer in to expand on delivering that promise. If you can continually increase the likelihood of them achieving that goal or solving that problem, you will probably be able to justify subscription revenue. It’s that simple!
- Any advice on how to operate two business models (single purchase and subscription) simultaneously? Many businesses that are going concerns, and already have a big business of happy customers buying via lumpy, anonymous transactions, struggle to incorporate subscriptions. You don’t want to cannibalize the existing business, or move to a less profitable model. In the LAUNCH section of The Forever Transaction, I advise businesses to experiment with subscription, off in the corner of the organization, with a small, dedicated team. For example, Nike experimented with EasyKicks, a kids shoe subscription, through its Advanced Innovation Team, and once they proved the model, rebranded it as Nike Adventure Club, and when they reach a predetermined target revenue and profitability, it will integrate into the bigger organization.
- How is acquisition different when you’re optimizing for lifetime customer value? In a traditional business, the goal of acquisition is to get the customer to buy. In the membership economy, the goal is to get the customer to become a member. In the former, you are optimizing for that moment of initial transaction. In the former, it doesn’t matter if that person uses the offering at all — once they drive the car off the showroom floor, that’s the customer’s problem. But if you need to optimize for lifetime value, you need to bring in the right customer, who is going to get value out of what they’re buying, and then you need to optimize the customer experience for engagement and retention. Responsibility for lifetime customer value goes beyond the moment of acquisition, and is the responsibility of the entire organization, not just sales and marketing.
- How do we create excitement and engagement for a new subscriber? What are the best practices for onboarding? The first thing you want to do when someone signs up for your service is give them immediate value. They likely joined for a specific reason — to watch a show, or learn a skill, or sign up for a conference. Make it easy. From there, your next goals are to help them develop the habits that will transform them from customers into members, and reinforce the wisdom of their decision to sign up in the first place. It’s important to choreograph these first seconds, minutes and days with the long-term in mind. To determine which features to add, look at the first few activities of the people who ended up becoming highly engaged and loyal subscribers, and guide your new subscribers to do the first thing. For example, if you have a streaming business, you might want to introduce them to the breadth of content you have, and maybe connect their app with their smart tv, so they’re more likely to enjoy watching your content.
- How do you know if you have product market fit with a subscription model? There are several reasons which could be driving lack of product market fit. If they aren’t buying the product at all, your problem might be with your message, with your channel, or with your “headline benefit” (the biggest benefit that you thought would be enough to win customers in the first place). If they are buying your product, but then canceling, you might have an issue with bringing in the wrong people (i.e. people who only want a fraction of your offer, like one piece of content) or they are finding that what you’re offering is what they thought, or they are “using up” the offering too fast and either tired of what you have or unable to benefit from it anymore. If you know why people are leaving, you’ll be able to fix the problem. And if people are staying for awhile, and your customer lifetime value is more than three times the cost of acquisition (this is just a generalization), you can relax b/c you have a pretty great model! There’s more about product market fit, by the way, in chapters 6 and 15 of The Forever Transaction.
- Subscriptions require constant communication — as we’re moving from transactional to a relationship. Any advice on how to cut above the noise and forge a valuable relationship with all the communications from other subscriptions cluttering inboxes? There is no hard and fast rule about how frequently to communicate with a new subscriber. If your communications are useful, your subscribers might have limitless appetite for insights and guidance! The most important thing is that the content is valuable. When you’re communicating with your subscribers, email and newsletters are just one channel. You can also build communication into the offering itself. You want to onboard new subscribers to show them how to make your offering part of their regular habits, and guide them to enjoy the benefits they’re already paying for. And it almost goes without saying that the best communications are personalized — don’t demonstrate a feature that the subscriber is already using, for example!
- Should we be concerned that so many subscribers are cancelling on day 1 of signing up? Seems to be widespread consumer behavior. Best practice on preventing or changing their mind later? Yes! There are a few reasons for this type of “failure to launch”. First, they may be surprised and disappointed by the experience — you know that feeling when you walk into a store and then immediately turn around and walk out because it’s not what you had in mind? If that’s your issue, you might clarify your communications for acquisition, so you don’t bring in the wrong people. A second reason might be that these folks are doing a “smash and grab” meaning they just want one feature or piece of content from you, and had no plans to stay — they just wanted to watch a single show, or use one feature one time, and are taking advantage of the free trial to get the one-time use. In that case, you can either try to onboard them to stay, or you can make it harder for people to game the system. But the most important thing is to get crystal clear on why this is happening. once you know, you’ll be better able to solve it.
- What is the value balance between the primary driver for joining a subscription (i.e. free shipping for Amazon Prime) vs added features that you may or may not use (Prime Video, Music, etc.)? Is there a good way to separate out value from each benefit or can it only really be viewed in the aggregate when thinking about churn prevention? You want to think about headline or acquisition features differently than engagement or retention features. A headline feature is what prompts the person to join. It might be the feature behind the paywall that makes a freemium subscriber upgrade, or the “new and improved” feature that finally attracts a new prospect. An engagement feature builds habits and stickiness, and motivates the new subscriber to make the mental shift from being a “consumer” to being a “member” — when they stop looking for alternatives and trust your organization. One way to determine the next retention feature to add is by looking at the top reasons for churn, and fixing some of the holes in your “leaky bucket”.
- At what point do you expect Subscription Fatigue to turn people away from subscriptions? Are we past that point? Subscriptions aren’t going away. The driver of subscription fatigue is poorly designed subscriptions, which aren’t optimized around the subscriber’s ongoing need. For example, if you’re required to subscribe to a music service to be able to listen to a single song you love, you might be frustrated with subscriptions. Or if it’s difficult to figure out how to cancel a subscription, consumers can grow frustrated — subscription fatigue is a natural byproduct of the rise in subscriptions.
- When someone is about to cancel, what are the best ways to save the relationship? Many organizations have elaborate processes designed to save subscribers who are ready to cancel. Some offer discounts, while others require laborious processes to get out of the relationship that was so easy to start. I don’t recommend either of these approaches. If you offer a discount to people who threaten to cancel, you teach your members that they should periodically call and threaten to cancel. After all, if they don’t, they aren’t getting the best pricing. Furthermore, this teaches your subscribers that you aren’t honoring your forever promise — you don’t necessarily treat your best customers in the best way. And you definitely shouldn’t “hide the cancel button” to keep people from canceling. Many organizations require a phone call or multiple screens of data before a subscriber can cancel. While in the short term, this might result in an increase in revenue, this type of “quarterly capitalism” will cause irreparable damage to your brand, and reduce the likelihood of that subscriber ever being won back in the future. So what should you do? You need to notice much earlier if they are disengaging from your service, by tracking how they use your offering. If you see that declining, you might want to intervene and understand what’s driving this change, so you can fix it on the spot. Engagement is the leading indicator of retention. When they ask to cancel, consider offering a “pause” button — currently very popular in this time of Covid 19 when I’m writing. And if they still want to cancel, let them. They’re much more likely to come back, and possibly to refer others as well!
Got more questions? Check out THE FOREVER TRANSACTION. It is a practical guide to building subscription models, wherever you are in you process — launching, scaling or already leading!